Non-Profit Financial Statements: Learn the Subtle Differences in Financial Terms [Video]

While both for-profit companies and not-for-profit organizations use the ‘Big Three’ financial statements to monitor and analyze their finances, there are subtle differences between which terms are used, depending on which side you’re on. When you’re a newly appointed CEO or Executive Director of a non-profit, knowing the differences in financial terms will put you in the right position with your new team, and ensures you’ve got the fundamentals in place before tackling the mission you’re truly there for. Watch today’s Money Monday Moments video for more (and skim the transcript below).

Dana Miller (00:01): Hello, and welcome to another rendition of Monday Money Moments with myself, your host, Dana Miller from Executive Financial Insights.

(00:11): Today, we are talking about another financial literacy term or terms I should say. And that is the names of the three statements that are used for non-profit organizations. Two of which have equivalent names to the for-profit world, and one is identical.

(00:33): So let’s start with our balance sheet. In the for-profit world it is called a balance sheet. In the not-for-profit world it is a statement of financial position. It is called that because a balance sheet in the for-profit world has three components, assets (what you own), liabilities (what you owe), and owners equity (which is what is left). However, in the not-for-profit world, we don’t have owners. We don’t have equity. We have what are called net assets. So we still have assets. We still have liabilities, but then we have net assets and that is what is left and available for growth in the organization. So that is your statement of financial position. Very commonly during the working year, nonprofits refer to it as a balance sheet, knowing that it isn’t necessarily the true definition of a balance sheet.

(01:34): Our next statement is the income statement for, for profits. For not-for-profits, it’s called the statement of activities and net assets. And the reason it’s called that is because a not-for-profit doesn’t necessarily have a profit and loss statement because they don’t make profits. They basically are reporting on how they are using their resources, both revenues and expenses to accomplish their mission. So you have at the top revenues, just like you do in a for-profit world, you have expenses next, like you do in the for-profit world. And then rather than net income, you have what is added to net assets at the end of the day. And it shows, like I said, how your revenues and expenses are being used to accomplish your mission.

(02:32): And then finally, the third statement is your statement of cash flows. And it’s identical on both reports, or both entities: for-profit and not-for-profit.

(02:44): So there you have it, the three main financial statements and how they are termed and used in the for-profit and most importantly in the, not-for-profit universe. Thank you for joining me today. And for further information and resources, you can check out our website at www.executivefinancialinsights.com.